INTRODUCTION

The Indian competition watchdog, Competition Commission of India (CCI) came to

the conclusion that its intervention is called for in the port sector as…several factors
like insufficient hinterland connectivity, associated transport cost, inadequate
availability of infrastructure at the competing port and quality of service
offered by the alternative port restrict inter-port and intra-port
competition.”(1) However, this intervention was called for through the analysis of a
commissioned report of The Energy Resource Institute (TERI) way back in 2008. Since
then, there has been no development in bringing the port sector within the relevant
antitrust domain by means of any official consultations or discussions. One possible
reason for the delay can be the diverse market structure of the industry which adds
on to the vast dimensions of it, making it a herculean task for any ‘non-sector
regulator’ to classify and de-fragment the industry.

The present article aims at providing a glimpse of the port industry vis-à-vis the
antitrust purview laterally with the antitrust loopholes that may be required to be
considered worthy of official consultations (if any) by the CCI, alike its international
counterparts (2).

STRUCTURE OF PORT INDUSTRY

A port is a multi-dimensional unit which is geographically secured but not

independent of its diverse operations, however, it can be characterized by its
governing edifice. It is one component of a vertical chain that carries a product from
producer to customer(3). A port may not necessarily undertake a specific activity
rather its functions may vary in accordance with the supply chains.

The port history has witnessed break-bulk cargo ships, however, the challenging
provision of capital intensive cranes and bounteous storage space modified the port
dynamics and intensified the need of specialized container ports. As a port forms
part of the maritime industry, it needs to have an effective functioning model which
is established on the grounds of various factors, for e.g. its geographical location,
number of subsidiaries (if any), Service providers, functions undertaken and etc.

Largely, the port functions fall under various heads and the accountability of the
same lies either on the Terminal operators or the Port authorities; depending upon
the nature of the function embarked upon. There are different types of antitrust
issues that may be associated with the port sector, however, the basis of the same is
dependent on the nature and working of the ports. Thus, in normal parlance it is
easier to say that there are three types of port related competition; inter-port, intra-
port and intra-terminal competition.
The Inter-port competition arises when two ports of a particular country or in
different countries compete with each other for similar cargo. Intra-port competition
refers to competition between two or more terminal operators within the same port,
competing for similar cargo. The Intra-terminal competition is quite a rare situation
as it refers to competition between two or more companies.There are a number of
economic factors that drive inter-port competition, which are, namely:

1. The low utilization along with high fixed cost of port operations
2. Falling costs of internal transportation
3. Increase in containerization.

However, it is hindered by insufficient hinterland connectivity and also because not

all ports can offer similar facilities. Further, traffic of nearby ports cannot be tempted
through value added services or reduction in tariffs due to the prevailing price
rigidity practices(4).

Clearly both inter-port and intra-port competition is at a growing stage in India and
it becomes important to note that it is excess capacity that drives inter-port
competition and intra-port competition. However, in case of Indian ports, most of
the terminals operate at more than 100% capacity and hence, there is no compulsion
for them to compete against each other for cargo. However, in the future one can
expect Inter-port to emerge once the ports being developed by state governments,
particularly in Gujarat and Andhra Pradesh come up and Intra-port competition will
emerge once the new container terminals planned at the existing ports come up.

PROBLEM AREAS

The antitrust loopholes can be differentiated from the troublesome aspects that may
escalate the antitrust issues in the port sector as the former are predominant in the
sector, however, the latter may pose antitrust issues in the near future. The taxing
concern is that the ‘sector regulator’ may face tough time because of privatization of
ports in many countries. Dealing with the troublesome aspects (condition areas), it
may be divided in the following broad heads:

a) Risk of operating in International waters

•The maritime industry is subject to higher risk of fraud as it involves bribery and
corruption to gain contracts or for obtaining requiste clearances

•The wisespread corruption in the maritime industry exposes it to the risk of

transportation of illicit items

•Absence of fraud tackling mechanisms in the maritime industry

b) Pricing strategies for capturing markets

•Ports may startegize their prices to capture markets

•Understating the value of the goods to avoid taxes and applicable duties

c) Customs Authorities role

•A pertinent question is to think that are the Custom Authorities accomplice to this
scenerio?

The subject matter of docking rights are governed differently in different jurisdictions
but it is common for them to be regulated by the local port authority (5). Many
modern ports contain several independently operated quays and terminals. Where
two or more operators own these terminals, a degree of intra-port competition can
exist. In these cases, port users may have several options of where to dock and which
terminal to use. In addition, there can be intra terminal competition in some
situations where multiple operators can provide competing services within the same
terminal (6). However, the prominent issues that arises from this debate is whether
the general economic interest exemption under EU anti-trust law (7) applies to them.
In Case C-179/90 Merci convenzionali porto di Genova v Siderugica Gabrielli (8) it was
held that dock work consisting of loading, unloading, transhipment, storage and
general movement of goods or material of any kind is not necessarily of general
economic interest exhibiting special characteristics compared with that of other
economic activities.

ANTI-TRUST LOOPHOLES

In addition to the above aspects, the antitrust loopholes that may form the very basis
for an active antitrust consultation in the maritime industry can be one of the
following:

S. No. Parameters Antitrust loopholes

Vessel Sharing Agreements Ports and Service providers must refrain from
(VSAs) incorporating any anti-competitive clause in
the VSA, along-with any clause through which
the entities share prices, business related or
customer information.
Vertical Agreements The Service Providers and Ports must ensure to
comply with the active antitrust law of the
particular country and should not adhere to
incorporating any anti-competitive clause
without any economic or geographical
validations.
 Meetings Sharing of privileged information during Trade
Association discussions and official
conferences, which may intensify cartel forming
behavior or revealing confidential information.
Pricing inputs and Loyalty Controlling competition between member
contracts shipping companies for pricing inputs is anti-
competitive in nature. Likewise, preventing
non-member shipping companies from
entering into contracts is against the antitrust
rules.
Role of agents The shipping industry often rely on agents for
obtaining clearances but no formal due
diligence process is carried out to shun out
dubious agents. The role of such agents must
be scrutinized and ensured that no honored
information is being mishandled giving rise to
cartel formation or antitrust behavior.
Disguised concession These may in the form of entry/exit barriers or
agreements collusive behavior by any of the entities.
Preferential agreements and Such agreements or services between Shipping
transportation services Lines and Service providers or agents should
not have any anti-competitive clause without
any economic justification.

SECTOR REGULATOR

To counter the effects of the antitrust issues in the maritime industry, a single sector
regulator is required which, is responsible for regulating all relevant issues in the
sector including competition issues, which has a jurisdiction over all major and minor
ports and ensures a level playing field to all players in the sector.

The main objective of an economic regulator in the port sector is to control anti-
competitive behaviour of port authorities and terminal operator. To achieve this
objective, they are often given the power to adjudicate disputes between port
authorities, terminal operators or port users and are in charge of verifying and
enforcing compliance with competition legislation. It further empowers the regulator
to submit economic, financial and operational data of the concerned public and
private entities and impose remedies/penalties in case of any violation of
competition rules and regulations. In some jurisdictions the regulator has a legal
right to start an investigation on its own initiative, without being triggered by a
formal complaint of a port user (9).
Of course, there may be situations where regulation is not needed or may play a
minor role, but this situation arises only when the competition is feasible. Whether
competition is feasible and/or desirable will depend on the traffic volume moved
within a port. However, with the increase in globalization, competition has increased
within the port industry as a whole, but has not equally influenced all ports or its
related activities. It largely depends on other facets, such as location, type, level and
structure of traffic served, and so on.

However, the major issue concerning the implementation of this regime is the
effectiveness of a port regulator in carrying out its duties, which is a result of whether
it holds an independent position. A port regulator should have its own income
independent from the National or State budget sufficient for an adequate
remuneration of its staff as well as covering the costs of specialists to assists them in
solving complex cases in order to avoid any complication or obstacles in the process.

In India, it has been observed that TAMP has been blamed for delays in issuing
judgments on tariffs in the cases of large infrastructure projects in the middle of the
bidding phase. The major reason behind this delay is due to the scarcity of personnel
and the financial dependency on the Government budget (10). Hence, it is advised
that a port regulator must operate independently from the states machinery while
carrying out the aforementioned duties.

INDIAN CONTEXT: CCI’S REPORT ON THE PORT INDUSTRY

Looking at the Indian Scenario, the CCI has already examined the current status with
respect to competition issues in the port industry and observed that the port sector
is largely regulated by state authorities, maritime boards and TAMP, but have no
specific mandate to promote competition in the ports sector. TAMP was set up as an
independent tariff regulator and its objective was to move towards competitive
pricing and provide a level playing field to all the players at least on matters of
pricing. However, it has failed to do the same, which brings us to the conclusion that
there lies a need for a unified sector regulator to tackle the various aforementioned
anti-competitive, anti-trust issues prevalent in India (11).

Moreover, over the years many organizational changes have been made in the
infrastructure sector of developing countries, which have resulted in increased
private sector involvement in the provision of services. However, such practices need
to be regulated as to prevent the occurrence of a monopoly and to allow market
forces to impact behavior of the players. This can be achieved through two
regulatory mechanisms, namely, access regulation and price regulation. In the
former, the access of firms to the facilities essential for competing in the market is
regulated and in the latter, prices along with the quality of services are regulated so
as to control the behaviour of private investors.
However, both the mechanisms provide an expensive alternative in developing
countries due to the presence of weak institutional structures that are unable to
facilitate unbiased decision-making processes and the collection of information (12).

This gap in the current regulatory set up in Indian ports sector raises the following
two issues:

1. Whether there should be a newly formed independent sector regulator for the
ports sector or TAMP’s scope and jurisdiction should be increased to make it
responsible for overall port regulation?
2. Whether the independent regulator be entrusted with competition related
powers?

Ideally, at least in the commission’s opinion it should be left to the competition

authorities to promote and maintain competition across the entire economy.
However, in most jurisdictions including India, competition authority has only ex-post
powers to enforce and maintain competition i.e. after there has been a violation of
competition provision. Moreover, the promotion of competition by the competition
authority is restricted to only advocacy (13). This becomes problematic as it will
prove to be a huge burden upon the commission to manage an entire industry as
they currently lack the personnel to undertake such a task.

CONCLUSION

Therefore, we can conclusively state that in emerging economies like India where
infrastructure services are traditionally provided by public utilities or government
departments, it is necessary for a regulator to introduce competition and create a
level playing field for new entrants. Moreover, it is required to operate proactively to
prohibit anti-competitive practices rather than reactively to violations of competition
rules. A sector regulator who has a better understanding of the sector is probably the
best equipped to introduce competition in the same, wherein it could lie within the
supervision of the Competition Commission of India and could also be withdrawn
once competition is well established in that sector.

[1] Available on http://www.cci.gov.in/competition-issues-regulated-industries-case-

india%E2%80%99s-transport-sector, last accessed on 22nd December, 2015

[2] The Ireland Competition and Consumer Protection Commission engaged in

extensive public consultations through Market Studies with regard to Competition in
Irish Ports Sector and published its recommendations in 2013. Likewise, in 2015, the
Portugal Competition Authority published its preliminary findings on a study entitled
"Competition in the port sector" for public consultation.
[3] Bonacich and Wilson (2008)

[4] TERI 2008, Competition issues in regulated industries: Case of the Indian
Transport Sector New Delhi: The Energy and Resources Institute. 149 pp. [Project
Report No. 2007CP21]

[5] Section 41 of the Maritime and Port Authority of Singapore Act provided for the
regulation of docking rights via the local authority with the prior approval of the
Minister.

[6] Competition in Ports and Port Services, OECD,

2011, http://www.oecd.org/regreform/sectors/48837794.pdf, last accessed on 31
December 2015, at page 30

[7] Article 106(2) TFEU stipulates that an undertaking entrusted with the operation of
services of general economic interest shall be subject to the rules on competition in
so far as the application of such rules does not obstruct the performance of the tasks
assigned to it

[8] Merci convenzionali porto di Genova v Siderugica Gabrielli, [1991] ECR I-5889

[9] Christiaan Van Krimpen, Regulation Of The Indian Port Sector, May
2011, http://www.ppiaf.org/sites/ppiaf.org/files/publication/Regulation_of_Port_secto
r_India.pdf, last accessed on 22nd December 2015

[10] ibid

[11] Supra 4

[12] Supra 4 at page 66

[13] Supra 4 at page 69